While inflation has been historically low for the past decade, inflation is a top concern for all retirees. Inflation is historically about 3% per year and that means, over the course of a 20-year retirement, everything you buy will more than double. Your daily cup of coffee that costs about $1.00 today may cost around $2.50 before your retirement is over.
Healthcare takes a bigger share of our expenses as we age. First, the inflation rate is higher for healthcare services. Where the general inflation rate is around 3% healthcare has been increasing at over 4%. Second, as we get older, we spend more staying healthy!
Many people think that Medicare or Medicaid will cover their healthcare costs in retirement. While they cover a lot, you should assume you will pay 25% or more of all your health care costs directly. So, you should either have a large pot of money set aside to cover these expenses or look to finance these costs through Medicare Supplement plans and Long-Term Care plans.
Your income must have inflation protection build in. Doing this requires a through discussion of your personal situation with a qualified retirement planner.